Section 179
From Wikicpa
Section 179 (Depreciation Deduction) of the United States Internal Revenue Code, allows businesses to immediately deduct the cost of certain types of property on their income taxes. This property is generally limited to tangible personal property such as equipment and vehicles. Buildings are not eligible for section 179 deductions. Depreciable property that is not eligible for a section 179 deduction is still deductible over a number of years through MACRS depreciation.
Contents |
Taxable income limitation
The total cost of property that may be expensed for any tax year can't exceed the total amount of taxable income. An amount disallowed as the result of the taxable income limitation is carried forward.
Inflation adjustment
For tax years beginning after 2007 and before 2011, the $125,000 and $500,000 amounts will be adjusted for inflation according to Rev. Proc 2007-60 and 2007-39.
Historical table
The section 179 deduction is intended for small businesses.
| Year | Section 179 deduction | Investment limitation |
|---|---|---|
| 2008 | $250,000 | $800,000 |
| 2007 | $125,000 | $500,000 |
| 2006 | $108,000 | $430,000 |
| 2005 | $105,000 | $420,000 |
| 2004 | $102,000 | $410,000 |
| 2003 | $100,000 | $405,000 |
| 2002 | $24,000 | $100,000 |
| 2001 | $24,000 | $100,000 |
| 2000 | $20,000 | $100,000 |
| 1999 | $19,000 | $100,000 |
Large vehicles
Up to $25,000 of the cost of vehicles over 6000;lb (2722;kg) can be deducted using a section 179 deduction. This deduction was enacted decades ago to assist self-employed people in purchasing a vehicle for business use. The weight minimum was intended to limit it to commercial-type trucks. For many years, the deduction remained below the average cost of a new vehicle, since large trucks were relatively inexpensive. Since it is a reduction in taxable income, the actual value of this deduction averages 30% of the price of the vehicle in question.
The increasing popularity of large vehicles such as sport utility vehicles in the last decade, however, pushed their average price to nearly double the average passenger car cost. In response, the 2002 Tax Act increased this deduction to $75,000, and it rose again to $100,000 for the 2003 tax year. This was more than three times the current average cost of a passenger car in the United States, and covered a large number of luxury models.
Critics felt that this deduction unfairly benefit buyers of heavy, and thus inefficient, vehicles. Indeed, the actual value of this deduction is far larger than the exemptions offered for alternative fuel vehicle purchasers. Further, some have suggested creating a small business simply to exploit this "loophole". Proponents contend that it benefits both small business owners and the United States automobile industry. Congress has since lowered the allowable deduction: as of October 22, 2004, only $25,000 may be deducted using section 179. In contrast, the maximum first year deduction for a passenger automobile is $10,610. Any excess cost may be deducted in future years.
2008 Vehicles with GVWR's above 6,000 Pounds
2007 vehicle limits
During 2007, the deduction stands at $125,000 but was severely limited as of October 22, 2004. After this date, it applies only to vehicles meeting one or more of the following criteria:
- A gross weight of more than 14000 lb (6350 kg)
- Seating more than 9 passengers behind the driver's seat
- Equipped with an open cargo box of at least 6 ft (1.8 m)
- Equipped with a closed cargo box not accessible from the interior
- Has a fully enclosed driver compartment and load carrying device, does not have seating rearward
of the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield
Vehicles over 6000 lb but not meeting these criteria are limited to a deduction of $25,000.
